Falcone Brothers & Assoc., Inc. v. City of Tucson (8/25/2016)

September 27, 2016

Arizona Court of Appeals Division Two holds that municipal procurement code is invalid when it lacks meaningful administrative and judicial review.

The City of Tucson Procurement Code specifies that contract disputes between the City and a supplier must go through a City-run review process and that the City’s final decision may be challenged only by special action within 30 days.  A City contractor filed a notice of claim against the City, alleging that a breach of contract caused it $2.5 million in damages.  Following Procurement Code procedure, the contractor brought the dispute before the City’s contract officer and procurement director, both of whom denied the claim.  Rather than instituting a special action review in superior court, however, the contractor filed a complaint alleging breach of contract.  The superior court, relying on the terms of the Procurement Code, granted the City’s motion to dismiss for lack of subject matter jurisdiction, failure to exhaust administrative remedies, res judicata, and collateral estoppel.

The Court of Appeals reversed, declaring several parts of the Procurement Code invalid.  First, it held that the administrative review process was invalid because it had only one substantive level of review.  The Procurement Code appeared to have a proper, two-tiered review procedure with the procurement officer reviewing the decision of the contract officer.  In substance, however, the procurement director had ultimate decision-making authority, the procurement director selected the hearing officer, and the City, through the procurement director, was a party to the contract on review.  Similarly, because the administrative review process was unlawful, the City could not contractually require the contractor to waive the right to a trial or shield the City from de novo review of contract claims in court.  In addition, the provisions in the Procurement Code limiting judicial review to special action proceedings within 30 days were deemed unenforceable because the City, through the Procurement Code, had no right to impose a time limit or type of action on the jurisdiction of the courts. 

Chief Judge Eckerstrom delivered the opinion; Judges Vásquez and Miller concurred.